July 28, 2010

Chicago voters could be asked to tax banks in foreclosures

Chicago voters would be asked to decide if the city should make banks pay transfer taxes when they take a home through foreclosure under a proposal a key City Council Committee approved today.

Aldermen are looking to squeeze more city revenue from home sales during a tough economy. Under state law, banks and other mortgage lenders are exempt from the transfer tax — one of the city’s primary income sources — paid by both the buyers and sellers of property in Chicago. But that law allows the council to start charging lenders if aldermen first get voter approval.

The Finance Committee approved the measure 8-2. But Ald. Bernard Stone, 50th, who voted against putting the referendum on the ballot, was able to put off a vote by the full council until the next meeting in September. He was joined in that effort by Ald. Pat Dowell, 3rd.

If the measure is approved in September, it would be on the ballot in next February’s city elections.

“It is the right tax at the right time for the right people,” said Ald. Roberto Maldonado, 26th, who proposed the referendum. Last year, 3,320 properties were taken by banks in Chicago through foreclosure, he said.

Stone and Ald. Thomas Tunney, 44th, opposed the measure, saying the banks would simply pass along the additional cost to the buyers of new homes, making them less affordable. Stone also said he did not believe the tax would survive a legal challenge.

To a large extent, banks have become targets of criticism in the current economy, after a burst in the housing bubble built on bad bank loans triggered one of the worst recessions in U.S. history. “What people are going to say is, ‘Sure, let the banks pay,’ " Stone said of the referendum.

David Hochberg, vice president of the Illinois Association of Mortgage Professionals, agreed that banks and other lenders would pass along the cost. Home buyers “will be double taxed when they purchase a foreclosed home,” he said.

“It’s a money grab, it’s a pass-through tax,” he added, after testifying against the referendum. Also opposing the measure for the same reasons was the Chicago Association of Realtors.

But Maldonado, president of the People’s Choice Mortgage Corp., said the costs won’t necessarily be passed on. “They will do it only if the market can bear it,” he said.

If his proposal succeeds, banks would pay a tax of $5.25 per $500 on the “transfer price.” That amounts to a tax of more than 1 percent.

Most of the tax goes to the city, but a portion — $1.50 on each $500 — goes to the Chicago Transit Authority.

Two years ago, the city was criticized for charging the transfer tax in divorce cases, when one spouse transferred his or her interest in the home to the other.

All 50 aldermen on the Chicago City Council had to file paperwork earlier this year detailing their outside income and gifts. The Tribune took that ethics paperwork and posted the information here for you to see. You can search by ward number or alderman's last name.

The Cook County Assessor's office has put together lists of projected median property tax bills for all suburban towns and city neighborhoods. We've posted them for you to get a look at who's paying more and who's paying less.

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